When I asked him what advice he would give these aspiring or hopeful entrepreneurs, he said, "It's all about cash. You pay your people with your cash. You invest to grow your business with cash. The ultimate measure of your performance is cash. Not EBITDA. Not net income. Not growth of revenue or subscriber acquisition. Not growth rate of this or growth rate of that. It's all about cash. You can't fudge cash."
Aaron went on to explain that too many entrepreneurs get distracted by other less valuable but easier to obtain metrics. They hyper-focus on metrics like user acquisition or clicks and downloads, hoping these indicators will bring in another round of investment and further raise their valuation--or even catch the preliminary interest of an investor.
"Entrepreneurs that completely disregard the need for cash haven't been in the game long enough to learn the lesson," he says. "Let's say you raise $1M for their startup. As soon as that $1M is gone, it's gone. You need to start generating cash, otherwise you are out of runway. And unless you are a golden startup that lives off increased valuations, your idea and your startup will die. At the end of the day, cash is all that matters."
Aaron also explained that the way an entrepreneur approaches an investor should be similarly aligned with how they approach their own employees. He goes on to say, "You can't pay your employees in 'growth rates.' You can't pay your light bill with EBITDA. These things take cash--and so do investors. Before an investor writes a check to you and your startup, they're going to want to know, very clearly, where the cash will be coming from and how long it will be for them to see a return on their investment."
What does this investor look for in an entrepreneur?
1. They "Know Their Stuff"
Aaron says, "I look for someone who knows the ins and outs of their business and the industry they are looking to play within."
Do you know your business and your business model, inside and out? How much do you really know about the market you want to step into? Can you see opportunities without too much wishful thinking? Can you be brutally honest with your team and yourself? If given the funding, do you know exactly where you want to go and how you're going to get there?
That's number one.
2. They Have The Ability To Lead People
Not everyone is a leader. Some entrepreneurs think they can lead just by giving themselves the title of "Founder" or "CEO." To Aaron's point, he says, "Being able to take an idea or an early stage concept and actually rally people behind it is a difficult thing."
When Aaron is looking for ventures to invest in, he says he looks for that "aura," which is based on how others act around them, how they carry themselves, etc.
3. Their Idea Has A Sound Economic Engine
There is a difference between a great idea in theory, and an idea that can actually build a business.
The third thing Aaron looks for when investing is whether or not the engine behind the idea actually makes sense. Something where you can create inputs and outputs that have margin on them. Something that can be measured, banked, reinvested, and compounded. Something that can ultimately put food on the table.
Remember: At the end of the day, somebody is going to have to pay.